Pub. 17, Chapter 22 - Limit on Itemized Deductions
If your itemized deductions are subject to the limit, the total of all your
itemized deductions is reduced by the smaller of:
- 3% of the amount by which your AGI exceeds $126,600 ($63,300 if married filing
separately), or
- 80% of your itemized deductions that are affected by the limit. See Which
Deductions Are Limited?, earlier.
Before you figure the overall limit on itemized deductions, you must first
complete lines 1 through 27 of Schedule A (Form 1040), including any appropriate forms
(such as Form 2106, Form 4684, etc.).
The overall limit on itemized deductions is figured after you have applied any
other limit on the allowance of any itemized deduction. These other limits include
charitable contribution limits (chapter 26), the limit on
certain meals and entertainment (chapter 28), and the
2%-of-adjusted-gross-income limit on certain miscellaneous deductions (chapter 30).
Itemized Deductions Worksheet. After you have
completed Schedule A (Form 1040) through line 27, you can use the Itemized
Deductions Worksheet in the Instructions for Form 1040 to figure
your limit. Enter the result on line 28 of Schedule A (Form 1040). Keep
the worksheet for your records.
You
should compare the amount of your standard deduction to the amount of
your itemized deductions after applying the limit. Use the greater amount
when completing line 36 of your Form 1040. See chapter
21 for information on how to figure your standard deduction.
Example
For tax year 1999, Bill and Terry Willow are filing a joint return on Form 1040
and have adjusted gross income of $255,250. Their Schedule A itemized deductions consist
of the following:
|
|
| State income and real estate taxes |
$17,900 |
| Home mortgage interest |
45,000 |
| Charitable contributions |
21,000 |
| Investment interest expense |
41,000 |
| Miscellaneous deductions |
17,240 |
|
|
| Total |
$142,140 |
|
|
The Willows figure their overall limit as follows:
|
Itemized Deductions Worksheet
- Line 28 (Schedule A) - (Keep for your
records)
|
|
|
| 1. |
Add the amounts on Schedule
A, lines 4, 9, 14, 18, 19, 26, and 27 |
$142,140 |
| 2. |
Add the amounts on Schedule
A, lines 4, 13, and 19, plus any gambling losses included on line 27 |
41,000 |
| 3. |
Is the amount on line 2
less than the amount on line 1? |
|
No. Stop. Enter the amount
from line 1 above on Schedule A. |
|
Yes. Subtract line 2 from
line 1. |
101,140 |
| 4. |
Multiply the amount on line 3 by 80%
(.80) |
80,912 |
| 5. |
Enter the amount from Form 1040, line
34 |
255,250 |
| 6. |
Enter $126,600 ($63,300 if married filing
separately) |
126,600 |
| 7. |
Is the amount on line 6
less than the amount on line 5? |
|
No. Stop. Enter the amount
from line 1 above on Schedule A, line 28. |
|
Yes. Subtract line 6 from
line 5 |
$128,650 |
| 8. |
Multiply the amount on line 7 by 3%
(.03) |
3,860 |
| 9. |
Enter the smaller of line
4 or line 8 |
3,860 |
| 10. |
Total itemized deductions.
Subtract line 9 from line 1. Enter the result here and on Schedule A, line
28 |
$138,280 |
|
|
Of their $142,140 total itemized deductions, the Willows can deduct only
$138,280. They enter $138,280 on Schedule A, line 28.
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